Targeted Employment Areas with Jeff Carr – Episode 7

Targeted Employment Areas

Targeted Employment Areas with Jeff Carr – Episode 7

Targeted Employment Areas (TEAs) essentially lower the EB5 investment hurdle from $1M to $500k.

That may change in the future, but will most likely always reduce the immigration investment amount.
How are TEAs defined? That is to topic we dive into with Economist Jeff Carr.

When the U.S. Congress created the EB-5 Program in 1990 the aim was to stimulate the U.S. economy through foreign capital investments and the resulting job creation. There is an exception but generally, an initial investment of $1 million is required for an EB-5 project. Targeted Employment Areas (T.E.A.) were formed as a way for investors to make a smaller investment ($500,000) into areas that are designated as being in need of economic stimulation, either rural or areas with high unemployment rate. It was generally believed that EB-5 developments in urban centers posed less financial risk than those in rural areas but, as time have passed, that has been proven false. The EB-5 program has many critics – including some members of Congress, labor unions, and some of the general public – but it is essential to remember that the Program is an important economic driver for the United States. EB-5s not only provide job growth but is key to economic development in the United States.
Host Mona Shah and co-host Mark Deal talk about Targeted Employment Areas (T.E.A.) with Jeff Carr, President and Senior Economist of Economic & Policy Resources, an economic research firm based in Williston, Vermont. They discuss some of the challenges investors face, the differences between urban and rural development projects, job creation, and some of the proposed legislative changes to the EB-5 Program.
The experience of Mr. Carr and the Economic & Policy Resources firm include:

  • Projects in over 40 states and 50 Regional Centers
  • Approval of over one thousand I-526 petitions
  • Approval of over two hundred I-829 petitions
  • Involved in approximately $14 billion in economic development projects and the creation of over 100,000 jobs as a result

The meaning of “direct job creation” as it relates to the EB-5 Program is discussed
The number of jobs created as a result of an EB-5 Project, should be broadened to include indirectly created jobs that are part of the businesses supply chain.
Job creation is more than traditional W-2 employment opportunities. A detailed economic report will illustrate and explain this ripple effect.
Counting the number of indirect job opportunities may be necessary depending on the corporate structure of the individual project.
Jeff clarifies that a qualifying T.E.A. allows an investor to take advantage of the reduced minimum investment of $500,000.
Mona and Jeff discuss some difficulties that project sponsors face when investors decide to make either the $500,000 investment in a T.E.A. or $1 million in a more traditional project. In addition to the investor needing maintain a standard of living, there are three key points to remember:

1. Many investors do not want to double the amount they invest – it is “dead money” that could be used for other things.

2. The funds are at-risk and there is no guarantee for a return on the investment.

3. $500,000 is easier to obtain than $1 million.

Mark explains how the $500,000 investment amount for T.E.A.s not only reduces the investment hurdle many immigrants face but also increases the marketability of Regional Centers.
Very few projects have been able to secure investors at the $1 million mark. Typically they not very large projects and have utilized friends or family to raise funds, not traditional marketing methods.
Mr. Carr talks about two distinct types of Targeted Employment Areas:

1. Rural – Must not be within a metropolitan statistical area (as defined by the U.S. Office of Management and Budget) and also outside of a municipality with a population of no more than 20,000 as identified by the most current U.S. Census – currently the 2010). Generally, there is more certainty and stability with Rural T.E.A.

2. High unemployment areas – Unemployment must be 150% of the national rate.

Mona and Jeff explain that because the unemployment rate calculation used by the USCIS is based on the residency of the job holders not the location of the project, large cities (Miami, New York, Los Angeles, etc.) are able to qualify as a High Unemployment T.E.A.
Jeff explains how the U.S. Census Journey to Work data shows many of the workers on a project are traveling from poorer areas and do not necessarily live near the project site.
Jeff discusses how there has been T.E.A. projects that “link” areas together (much like gerrymandering) to meet the high unemployment requirements.
Ms. Shah talks about how the EB-5 Program gained in popularity as more projects developed in urban areas rather than having to focus on a rural environment.
Immigrant-investors who are not specifically looking to become U.S. citizen have other options as more international competition to the U.S. immigration programs are developing; Canada and some European countries which are developing projects similar to the EB-5 Program.
Mona questions Jeff on possible consequence to job creation and economic productivity if there is an increase to the minimum $500,000 investment. The purchasing power of $500,000 has decreased significantly since 1990 when it was initially proposed.
Mark asks Mr. Carr is he sees Targeted Employment Areas disappearing. While T.E.A.s will never disappear current legislation will make them more exclusive. Currently, 90% of EB-5 projects take advantage of a T.E.A. The current proposed reforms will restrict Targeted Employment Areas especially in urban areas.
A report from the Government Accountability Office states that T.E.A.s were meant to be special cases and to help areas that were in economic distress. The full report can be read here – Immigrant Investor Program.

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